“In Asia-Pacific, authorities are looking more closely at in-bound digital business-to-consumer (B2C) services by foreign service providers, as well as the import of low-value goods. The latter are typically ordered online via online platforms and may not have historically incurred VAT at importation due to relevant thresholds. B2C transactions have in many cases slipped through the gaps, with legislation only taxing B2B via a ‘reverse charge’.’” Rule and rate changes for both are underway or imminent in China, Malaysia and Singapore, among others, according to Bromley.
4. VAT fraud is alive and well
As nations turn to VAT for an ever-greater portion of their tax revenues, VAT fraud – when a business presents a refund request for VAT that was never paid or fails to deliver VAT, that it collected from its customers, to the host government – is coming more into the spotlight.
The issue is commonplace among developing nations. The UN’s Economic Commission for Latin America and the Caribbean (ECLAC) says3 that VAT evasion across Latin America has grown substantially, accounting for US$120 billion in missed revenues in 2015 alone.
In more developed economies, there has been some success in reducing VAT fraud. The European Commission, for example, estimates it reduced its VAT gap – the difference between expected VAT revenues and what is actually collected – from US$161 billion in 2016 to US$150 billion in 2017.
Consequently, governments are focusing more time and effort on reducing VAT fraud by overhauling their systems. In turn, this puts pressure on businesses to keep up with tax authorities’ changing systems and the latest technology.
5. Growing digital reporting and compliance requirements
Largely in response to the rise of VAT fraud, but also stemming from the rise of the digital economy and the general desire among tax authorities to reduce their operating costs and improve efficiency, VAT is “going digital.”
Traditional VAT compliance used to be a relatively relaxed affair. “Filing was always of a summary nature, never highly detailed,” says Dossche. “You could close your company books the first week of the next month and then still have 10 to 20 days to make corrections before filing your VAT forms.”
But no longer: “What we’re seeing now – and this will accelerate – is a shift to real-time, fully digital VAT reporting,” says Vandenplas. “You will no longer have time to make corrections before you file these digital reports. Each country will have its own rules for addressing errors or updates – fines and assessments for missteps will likely be more frequent.”